‘Tis the season for Ebenezer Scrooge to strut the stage once again. It might be why a “Bah! Humbug!” came to mind when rebalancing the Dividend Monster portfolio.
The portfolio was recently found to have performed better when rebalanced annually (at the end of October) rather than monthly. The result was unexpected because momentum-based strategies, like the one used by the Dividend Monster, usually produce weaker returns when they’re refreshed less frequently.
Before exploring the issue, it’s useful to update the portfolio’s long-term return record. It gained an average of 16.1 per cent annually over the 26 years through to the end of November, 2025, when rebalanced monthly. In comparison, the Canadian stock market, as represented by the S&P/TSX Composite Index, climbed by an average of 8.5 per cent annually over the same period. (The returns herein are based on backtests using data from Bloomberg. They include dividend reinvestment but not fund fees, taxes, commissions or other trading costs. The portfolios are equally weighted.)
The Dividend Monster picks stocks by starting with the largest 300 on the Toronto Stock Exchange by market capitalization. It then focuses on the half of dividend payers with the highest dividend yields before selecting the 10 stocks with the highest returns over the prior six months. As a result, it picks stocks with generous yields that have performed well in recent times.
Many investors prefer to rebalance their portfolios quarterly or annually rather than monthly because doing so requires less effort and lowers trading costs.
Investors who opt for quarterly rebalancing might do so at the end of each calendar quarter (March, June, September, and December) or they might shift their rebalancing efforts by a month or two, which leads to three variations on the quarterly theme.
The three quarterly rebalanced portfolios sport average annual returns of 15.3, 16.9, and 13.8 per cent over the 26 years to the end of November, October and September of 2025 respectively. (The market index climbed at average annual rates of 8.5 per cent, 8.5 per cent, and 8.6 per cent over the same periods.)
The best performance came from the portfolio that was rebalanced at the end of October, July, April and January.
The situation becomes more dramatic for annually rebalanced portfolios. The accompanying graph shows the Dividend Monster portfolio’s average annual outperformance, in comparison to the market index, over the 26 years through to the end of each month in 2025. (Except for December which uses gains over the 26 years through to the end of December, 2024.)
The best performance was achieved by the portfolio that was rebalanced at the end of October each year. It gained an average of 16.6 per cent annually through to the end of October, 2025, while the market index advanced by an average of 8.5 per cent annually over the same period. The portfolio beat the index by nearly 8.2 percentage points a year.
On the other hand, the worst showing was seen when the portfolio was rebalanced at the end of February. It gained an average of 10.6 per cent annually over the 26 years to the end of February, 2025, while the market index climbed at an average annual rate of 8.3 per cent. The portfolio beat the index by a little over 2.3 percentage points a year.
The idea of buying predominantly in the fall worked well when applied over the past 26 years or so. But it seems likely that luck played a pretty big role in the outcome.
Instead, investors might try to benefit from longer holding periods by dividing their money into twelfths and investing a portion each month. That way they won’t suffer as much as they would have by rebalancing it all in what turns out to be a bad month. For instance, one might build up a portfolio of, say, 12 stocks by buying a new stock each month with the intention of holding it for a year.
(I’ll leave the exploration of rebalancing using different starting weeks, or days, for another time.)
With a little luck, the Dividend Monster will continue to fare well over the long term but investors should be aware that seemingly small changes to it might lead to substantially different outcomes.
Details on the stocks in the Dividend Monster portfolio and the others I follow for the Globe and Mail can be found via this link.
Norman Rothery, PhD, CFA, is the founder of StingyInvestor.com.
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